Imperial College Business School. Asset Pricing and Derivatives Syllabus

Transcription

1 Imperial College Business School Asset Pricing and Derivatives Spring A. Buraschi Syllabus I. Administrative: Homework: Web-based homeworks will be assigned every week. These assignments are immediately graded, so that both you and me will have a precise sense of your learning during the course. Late homeworks will not be accepted. Grading: The course grade is based on your performance on the Final (80 percent) and Homeworks/Case Studies (20 percent). The case studies material will be distributed in class. The Homeworks will be done on-line (weekly) and solved in class by tutor. Required Text: 1. Options, Futures, and Other Derivatives by John C. Hull, Prentice-Hall Latest Edition. This is the key and main text of the course. Optional Texts and Reference Texts: 1 1. Derivative Securities, by R. A. Jarrow and S. M. Turnbull, South-Western College Publishing, 1996, ISBN # Or later edition. 2. Options Markets, John C. Cox and Mark Rubinstein, Prentice Hall, 1985, ISBN # Merton Miller on Derivatives, by Merton H. Miller, John Wiley and Sons, Inc., 1997, ISBN # Investment Science, by David G. Luenberger, Oxford University Press, 1997, ISBN # Useful reference for some topics. II. Course Outline and Reading List: Note: all readings, except for starred readings (*), are required and should be read prior to the class for which they are assigned. Starred readings (*) are recommended. Week 0 -(Please review this material - it will not be covered in class) 1 You do not need to purchase any of them; they are for reference only! 1

2 1. Continuous Compounding and Term Structure Mathematics Week 1 Hull, Ch. 4* 1. Introduction and Institutional Aspects of Forwards and Futures Lecture Note 1 Part A Hull Ch. 1, 2 J&T Ch *, 1.7* 2. Pricing Forwards and Futures Week 2 Lecture Note 1 Part B Hull Ch. 5 (including appendix) J&T Ch. 2* 1. Case Study: Strategic Risk Management at Titan Shipping Company: Lessons from Metallgesellschaft The following readings are background material on the Metallgesellschaft debacle, useful for the solution of the case study: Culp, C. L., Miller M. H., Hedging a Flow of Commodity Deliveries with Futures: Lessons from Metallgesellschaft. Derivatives Quarterly, Fall 1994, Mello, A. S., Parsons, J. E., Strategic Hedging. Journal of Applied Corporate Finance, 12, Culp, C. L., Miller M. H., Metallgesellschaft and the Economics of Synthetic Storage. Journal of Applied Corporate Finance, 4, The following are additional readings (not necessary, but interesting): Culp, C. L., Miller M. H., Hedging in the Theory of Corporate Finance: a Reply to our Critics. Journal of Applied Corporate Finance, 1, * Mello, A. S., Parsons, J. E., Maturity Structure of a Hedge Matters: Lessons from the Metallgesellschaft Debacle. Journal of Applied Corporate Finance, 8, * Mello, A. S., Parsons, J. E., Hedging and Liquidity. Review of Financial Studies, 13, * Krapels, E., 26/03/2001. Re-examining the Metallgesellschaft Affair and its Implication for Oil Traders. Oil and Gas Journal.* 2. Introduction to Options Lecture Note 2 Part A Hull Ch. 8 2

3 3. Basic No-Arbitrage Bounds on Options Prices Lecture Note 2 Part B Hull Ch , 9.7 to the end J&T Ch. 3* Ofek, E., Richardson, M., Whitelaw, R. F., Limited Arbitrage and Short Sales Restrictions: Evidence from the Options Markets. Journal of Financial Economics, 74, *. 4. Optimal early Exercise of American Options Lecture Note 2 Part C Hull Ch J&T Ch * 5. Elementary Trading Strategies and Additional No Arbitrage Restrictions Note:examinable material that will not be covered in class Week 3 Lecture Note 2 Appendix Hull Ch Binomial Option Pricing Week 4 Lecture Note 3 Hull Ch. 11 J&T Ch. 4*, *, 7.4* 1. Black and Scholes Pricing Formula Week 5 Lecture Note 4 Hull Ch. 13 (everything except 13.10), 12* J&T Ch. 8* Black F., Scholes, M., The Pricing of Option and Corporate Liabilities. Journal of Political Economy 81, * 1. Extensions to Black and Scholes and Risk Management with Options Week 6 Lecture Note 5 Hull Ch. 15, , 17 J&T Ch *, 10*, *, 12* 1. Empirical Evidence 3

4 Lecture Note 6 Part A Hull Ch. 18 Coval, J.D., Shumway, T., Expected Option Returns. Journal of Finance, 56, * Derman, E., Kani, I., The Volatility Smile and Its Implied Tree. RISK, 7, * Yan, S., Jump Risk, Stock Returns, and Slope of Implied Volatility Smile. Journal of Financial Economics, 99, * Driessen, J., Maenhout, P., An Empirical Portfolio Perspective on Option Pricing Anomalies. Review of Finance, 11, * 2. Volatility Markets Week 7 Lecture Note 6 Part B Brockhause, O., Long, D., Volatility swaps made simple. Risk, 19, * Demeterfi, K., Derman, E., Kamal, M., Zou, J., A Guide to Volatility and Variance Swaps. The Journal of Derivatives, 6, 9-32.* Van der Grient, B., Volatility as Alpha Driver. MET, 16, * 1. Swaps, Swaptions, and Interest Rate Options Week 8 Lecture Note 7 Hull Ch. 7 J&T Ch. 14* 1. Case Study Handout: Creative Balance Sheet Debt Management: Greek Swaps and Swaps a la Milanese Balzli, Beat, 02/08/2010. Greek Debt Crisis: How Goldman Sachs Helped Greece to Mask its True Debt. Spiegel.* Dunbar, Nick. 01/07/2003. Revealed: Goldman Sachs Mega-Deal for Greece. Risk Magazine.* Boland, V., Dinmore, G., Sanderson, R., Tett, G., 09/03/2010. An Exposed Position. Financial Times.* Boland, V., 18/03/2010. Milan Swaps Case Puts Banks in Hot Seat. Financial Times.* 2. Using Option Theory to Value Corporate Securities Lecture Note 8 4

5 Week 9 Greenhalgh, H., 26/04/2009. Convertibles Get a Brief Boost. Financial Times.* Hughes, J., 08/02/2010. Convertibles Look Ahead to Sunny Days. Financial Times.* 1. Introduction to Fixed Income Derivatives and Term Structure Models Lecture Note 9 Hull Ch. 28, 30 J&T Ch. 15*, 16* Ho, T. S., Stapleton, R. C., Subrahmanyam, M. G., The Valuation of American Options on Bonds. Journal of Banking & Finance, 21, * Vasicek, O., An Equilibrium Characterisation of the Term Structure. Journal of Financial Economics, 5, * 5